How utility collaboration can cut community solar costs up to 40%
A new brief from the Rocky Mountain Institute reveals lessons from its field work in supporting shared solar development.
One of the best-known energy think tanks in the U.S. is getting out into the field, working to open new market opportunities for utilities and customers in the community shared solar sector.
Rocky Mountain Institute (RMI) Manager Joseph Goodman left a position in the U.S. Department of Energy (DOE) SunShot program for the opportunity to show how to make community solar markets happen, he told Utility Dive in an interview.
Under Goodman’s leadership, RMI is now working with community-based organizations, rural electric cooperatives and public and investor-owned utilities to demonstrate that it is possible to deploy community solar installations at prices up to 40% lower than installations today.
RMI is doing more than studying markets and constructing theories.
“We are now making markets happen,” Goodman said. “We are testing the hypothesis that community scale solar can be the lowest cost and highest value form of solar on the grid.”
RMI’s just-released Insight Brief, "Community-Scale Solar; Why Developers and Buyers Should Focus On This High-Potential Market Segment," provides a formula for scaling community solar based on the analysts' actual experiences in the marketplace.
The projects RMI is supporting are not competing against community solar developers, Goodman said. It is “making a market in which those developers can compete.”
RMI's people are also working with community-based organizations like ROCSPOT, a renewables and sustainability group in Rochester, New York, and Kit Carson Rural Electric Cooperative in New Mexico. They are showing both kinds of groups the most cost-effective ways to make a community-scale project happen, from pre-development through procurement to electricity production.
The value proposition
The RMI brief begins with redefining the market. Instead of “projects in which output from a solar array is divided among and credited to multiple subscribers or owners,” it explained, community-scale solar is shared solar should be thought of as a subset of all 500 kW to 5 MW solar installations on the distribution systems, including those “owned by utilities and third-party-owned arrays that sell energy to a utility.”
One key to the value proposition in community-scale solar is that it combines benefits offered by both utility-scale installations and behind-the-meter systems housed on customer roofs.
Community-scale solar "does not have to be sited behind a customer’s meter or out in the hinterland of an urban region where the locals object and there is no capacity on the grid,” Goodman said.
Like utility-scale solar, the per-kWh cost of community solar is lower than rooftop systems because it is big enough to have economies of scale and can be built with lower-cost standardized power blocks. That also makes it easier to finance.
But like distributed solar, it can be near or co-located with load, reducing line losses and easing interconnection. It also can be sited on lower-cost, easier to permit community-owned land and it can strengthen local grid resilience around those sites.
Two things are unique to community-scale solar, the brief explained. One is the ability of buyers and sellers to cooperate in building it. That can reduce the price as much as 40%. The other is its ability to include as participants renters, those without solar-suitable roofs, and low-to-moderate-income (LMI) utility customers.
“It is possible to use those attributes to drive down price, increase demand, and grow the market,” Goodman said.
In a recent meeting with a utility-scale developer, Goodman said, they budgeted a 100 MW project and a community-scale project side by side and found the installed prices to be comparable.
“Some line items go up a bit, some go down, but the price comes out nearly the same,” he said.
Before RMI arrived to work with stakeholders in Rochester, analyses from community solar developers’ analyses concluded there was no market in the city because of its limited solar resource and its low retail electricity price compared to the rest of New York state, Goodman said.
He connected with ROCSPOT and layed out plans for eight community-scale projects of 2 MW each. He showed ROCSPOT's people how to do “pre-notice-to-proceed development work” like finding a site, handling permitting and zoning, and scheduling interconnection.
"They completed most of the necessary activities at far less cost than an outside developer ever could,” he said. As a result, “you go from a solar market where subscribers have to pay a 10% to 20% premium to a market where subscribers can get a 10% to 20% savings. We think of that as making markets.”
He is now in the process of helping ROCSPOT procure a subscription manager or managers. That position will be filled by one or more of the experienced community solar developers like CEC, SunShare, and Solstice Initiative, he said.
ROCSPOT will draw on the developers’ expertise in things like software, billing support, and engagement platforms. But it is also “hiring and training a local workforce in collaboration with the Democracy Collective and that workforce will operate and maintain the system and tell the story to people in the community and engage them as subscribers,” Goodman said.
That will increase community support, reducing the cost of customer acquisition and slowing customer churn, he added.
“It seems to be where the market is heading," Goodman said. Newer developers, like Solstice Initiative, are going into communities and engaging locals.”
A better understanding of market participants can help developers cut costs, the brief reports. In general, there are two kinds of buyers, said RMI Associate and Insight Brief co-author Kevin Brehm.
First, there are households and small businesses that are the well-profiled shared solar subscribers. Because those subscribers are unlikely to aggregate and obtain a PPA themselves, they are typically represented by a community solar developer or a community-based organization.
The other kind of buyer, Brehm said, are rural electric cooperatives, municipal utilities, and investor-owned utilities.
Sellers are the companies who build, develop, and may own community solar projects, as well as the engineering, procurement, and construction (EPC) contractors, the equipment vendors, and the balance of the solar industry players.
Price cuts will begin to come when buyers use the resources they can, such as when ROCSPOT’s people handled siting, permitting and interconnections. Sellers also have levers to cut costs, like hardware and labor cost controls, according to the paper.
When both buyers and sellers use their shared leverage, like contract structure, volume aggregation, system design, and margin reduction, costs for community solar installations can be cut by up to 40%.
The more utilities learn about community-scale solar, the more they like it, RMI reports.
RMI’s report shows 14 states and Washington, D.C., had community solar-supporting legislation at the end of 2015, and at least 30 states had at least one active utility-involved community solar program.
Community solar makes the solar option available to a wider selection of customers and has an economic advantage of scale that improves the return on any public or ratepayer subsidies, according to Central Maine Power Communications Director John H. Carroll. It also provides value as a system enhancement and creates opportunities for both utility-funded and utility-developed projects that have ratepayer benefits.
Utilities throughout the nation are getting in on the market. Rocky Mountain Power, a subsidiary of Warren Buffett’s Berkshire Hathaway Energy, is building a 20 MW “Subscriber Solar” installation in Utah for residential and business customers who cannot or choose not to invest in their own rooftop solar.
The utility has the commission’s support because the program is designed to avoid imposing any cost burden on non-solar-owners, according to Berkshire Hathaway Energy VP Jonathan Weisgall. Customers will be offered “blocks” of the project’s output at a price that, although slightly above the current retail rate, could save for consumers in two ways.
“Drawing on solar generation can allow some business and residential customers to avoid the portion of their utility electricity usage that would otherwise be charged at the most expensive rate tier," he said. "For residential customers, the fixed, 20-year subscription’s electricity price can reasonably be expected to ultimately be below the retail rate over the life of the program.”
Berkshire Hathaway Energy hopes the pilot "will turn out to be a win-win both for the utility and the customers because the project will offer more efficient, lower cost solar production,” Weisgall added.
Duke Energy is launching a community solar project in South Carolina in 2017, reported Spokesperson Ryan Mosier. Duke finds community solar appeals to customers in general and especially to nonprofits and customers in multifamily dwellings, renters, and those who don’t have access to solar otherwise.
“We’re looking at the business case for shared solar for customers in each of the states we serve,” Mosier added.
Enthusiasm for community solar is not limited to IOUs. Despite being a smaller segment of utility retail sales, over 70% of utility-sponsored community solar programs are co-op programs, said National Rural Electric Cooperative Association (NRECA) Sr. Communications Manager Tracy K. Warren.
“Electric co-ops have embraced the community solar model because it perfectly dove-tails with our consumer-owned business model. It’s home-grown, locally owned, and incredibly flexible," she said.
It also strengthens the co-op’s relationship with its consumer-members and with the larger community, she added.
RMI has worked with four co-ops in New Mexico and is in the process of releasing a request for proposals on behalf of two. It is also working with a Colorado co-op.
“Small utilities are often interested in solar and have demand from their members for solar but may not have much exposure to solar,” Brehm said. “As relatively small organizations, they also may be limited in the attention they can give to managing the pre-development and procurement processes. We are helping them with those challenges.”
'No buyers guide'
There is no “buyers guide” for community-scale solar, Goodman said.
Historical transaction data shows systems of comparable sizes can cost anywhere from $1/watt to $7/watt. Though 70% fall between $2/watt and $4/watt, “the spread validates the idea there is an opportunity for buyers to bring down costs,” Goodman said.
The paper’s analysis shows “community-scale solar buyers—whether utilities or community-based organizations (CBOs)—can reduce total costs by supporting the development process.”
The brief describes buyer-supported siting, in which the community or utility provides land or connects developers to local landowners.
“Co-ops and munis often own land adjacent to substations, or are closely connected to municipal authorities that own ideal sites in their service territories," the brief pointed out.
Utilities can also cut costs “by identifying regions of the grid that can easily integrate community solar…[and] covering all tie-in costs on the utility side of the point of interconnection."
Permitting and zoning can be supported by buyers with relationships to permitting and zoning officials who can streamline the processes.
There are also seller-levers to drive down costs. Non-module hardware costs can be lowered by incorporating standardized power blocks and system designs. NRECA’s community solar program is growing through use of a standardized community solar “PV system package” developed in conjunction with the DOE SunShot program. Such standardization also cuts labor and equipment costs.
The big cost-reduction opportunities are in shared buyer-seller levers, according to the paper. Contract structures that “effectively utilize tax credits, capture lifetime project value, and reduce cost of capital” are key. A 2015 NRECA survey found 47% of co-op projects did not use ITC benefits that can be captured directly or indirectly.
Third-party ownership has limits in the community-scale solar market but “full project value can be captured through long-term contracts (e.g., 25 or 30 years) or through ownership flips to the power user.”
Co-ops, munis, and community organizations can access low-cost capital but have no use for tax credits. Efficiently designed contracts with third parties make sure the project gets the benefit of both. They also eliminate risk from defaulting subscribers.
New deals are also being worked out with “low-cost accredited or crowd-sourced equity financing, community development financial institution participation, and other low-cost financing options.”
Volume aggregation through portfolios of projects, like the Rochester plan, increases economies of scale. It allows for a single request for proposals (RFP) and supports standard terms and conditions.
A standardized design based on best practices will also reduce cost. “Buyers must manage procurement processes in such a way that high-value projects emerge. Sellers must be ready to respond to procurement processes with solar arrays that maximize total value.”
Scaling the opportunity
Community-scale solar has a “magical opportunity to find the best project attributes in a community,” Goodman said. RMI’s intent is support a better value proposition so that systems can be built that produce electricity at or below the wholesale cost.
When that is the case, “there will be many ways to acquire subscribers and there will be no need for subscribers. Developers will grow. Community-based organizations will use third parties. And utilities will do on-bill subscriptions,” Goodman said. “Once solar can save people money, the local organizations, utilities or non-profits, will take over and scale the opportunity.